Moving to accelerate its recovery, Fleet Financial Group said Wednesday that it wants to sell 30%, or about $500 million, of its bad assets.
The Providence, R.I.-based banking company said it hopes to unload the assets -- 250 to 300 real estate and commercial loans and foreclosed properties -- at 50 cents to 55 cents on the dollar.
All the assets are in New England and valued on Fleet's books at about 75 cents on the dollar.
Charge to Be Offset
Fleet, which has $44.6 billion in assets, said the sale would force it to take a special charge of $100 million to $125 million in the third, quarter. However, the charge would be largely offset by a $120 million special gain from the sale of a 19% interest in its mortgage company.
Fleet's stock was trading late Wednesday at $28.50 a share, down 50 cents.
Massive sales of bad loans are expected to become increasingly popular as recovering banks move to put all their problems behind them.
Indeed, Fleet's announcement came just two days after First Chicago Corp. announced that it planned to take a $625 million special charge so it could sell $2.1 billion in bad loans.
Persistent Drag on Profits
Fleet's nonperforming assets at the end of the second quarter totaled about $1.5 billion, or 5.6% of loans and foreclosed real estate. While diversification has kept it from suffering huge losses from these problems, they have been a significant drag on earnings.
Still, Wall Street's reaction to the announcement was mixed.
While analysts agreed that Fleet needs to make better progress in reducing its bad assets, some said the company may be paying too much to accomplish that goal if it does this deal.
"I'm not sure it's in the shareholders' interest to jump the credit cycle," said David Berry, an analyst at Keefe, Bruyette & Woods Inc.
Losing Recoverable Value?
While bulk sales get assets off the books faster, Mr. Berry said, more traditional workout methods recover more of a loan's value. If banks adopt this wholesale method of disposing of bad assets, he added, it could further depress real estate prices and force banks to take additional writedowns.
However, Eugene M. McQuade, Fleet's senior vice president for finance, said Fleet, in any event, would have to take about $125 million in writedowns and other costs during the next two years because of the problem assets slated for sale.
"We're just accelerating what we think will happen to these loans," said Mr. McQuade.
Furthermore, he said, getting the assets off the books this year will make it easier for Fleet to acquire other banks in and around the region.
Talks Planned with Bidders
Although Fleet is not in negotiations with a buyer now, Mr. McQuade said, the company is planning to hold discussions with about a dozen potential buyers in the next two weeks.
Based on previous conversations with potential buyers, he said, he is confident that Fleet will be able to negotiate a deal, if it decides to proceed. "Our intention is to run an auction," he said.
Mr. McQuade said Fleet considered setting up a so-called bad bank for the problem assets but scrapped the idea because it believed a sale would cost less.